Carbon Finance in Practice Public Heating Biomass Systems in Moldovan Rural Communities Project

1
Carbon Finance in PracticePublic Heating
Biomass Systems in Moldovan Rural Communities
Project

• Anatol Gobjila, World Bank
• February 28, 2007,
• Tirana, Albania

2
Institutional Set-Up for CarbonFinance in Moldova

• Ministry of Environment and National Resources
  Designated National Authority for Climate Change
• National Climate Change Committee a public
  climate change forum
• Carbon Finance Unit - a public carbon finance
  project implementation agency.

3
Project Specific Country Background

• High levels of poverty in rural areas
• Deteriorating infrastructure and limited public
  spending for rehabilitation
• Large dependency on imported fossil fuels
• Vast use of inefficient fossil-based heating
  systems in public buildings in rural areas
• Proven potential for energy efficient and clean
  energy technology using renewable resources
  (biomass from agricultural waste) for heating of
  public buildings (schools, hospitals and other
  public service buildings) in rural communities.

4
The Research behind the Project

• A 2002 World Bank sector study indicated that
• Unprocessed agricultural waste, primarily straw,
  is the best suited biomass resource for thermal
  energy production in Moldova
• Small scale systems (500 - 1000KWth) are suited
  for initial introduction in Moldovan rural
  communities
• Primary barriers for switching to renewable
  energy systems (RES) are (i) confidence in
  renewable energy systems and (ii) limited
  financial resources available at rural community
  level.

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Addressing RES Adoption Barriers

• The Confidence Barrier is addressed through the
  GEF MSP Renewable Energy from Agricultural Waste
  Project (supply and installation of pilot biomass
  heating systems)
• The Financing Barrier is addressed through
• - the Social Investment Fund (SIF) II Project
  (capital cost for a new heating system and energy
  efficiency improvements)
• - the Public Heating Biomass Systems in Moldovan
  Rural Communities Project (incremental capital
  cost for RES through carbon credits and
  monetized efficiency gains)

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Project Objectives

• Generate an added value to the SIF II Project,
  under implementation in Moldova, through gained
  GHG Emission Reduction (ERs) benefits
• Direct GHG ERs benefits towards SIF II project
  participants, thus creating incentives for
  further implementation of GHG mitigation
  measures, such as use of clean energy
  technologies (biomass).

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Project Description

• Category of the project activity
• I. C "Thermal energy for the user"
• II.E "Energy efficiency and fuel switching
  measures for buildings"
• III.B "Switching fossil fuels
• Buyer of GHG ERs - the Community Development
  Carbon Fund (CDCF), administered by the World
  Bank
• The Project represents a bundle of CDM
  small-scale project activities (currently 61,
  potentially up to some 240) and refers to the
  installation of new heating systems for a series
  of public buildings in rural areas
• The main feature of the Project (although not
  limited to) is the use of biomass (straw) as fuel
  for heat production
• Project activities (PA) are technologically
  independent, stand-alone, and spread out all over
  the country
• Project duration 2006-2017
• Estimated reductions 356,000 tones of CO2, over
  11 years .

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Project Benefits

• Economic Benefits the Project leads to a
  decrease in the cost of a heat unit production
  and additional income streams for beneficiaries
  in the form of carbon payments and monetized
  efficiency gains.
• Social Benefits
• - the Project allows to decrease payment burden
  for consumed energy resources and increase local
  employment
• - besides it, the project improves the living
  and activity conditions within the considered
  public buildings (the room heating temperature
  normalization increased duration of the heating
  period availability of affordable hot water)
• Environmental Benefits Conventional coal-burning
  boiler houses create massive pollution, hence a
  switch to biomass or gas, as envisaged by the
  Project will substantially reduce in-door and
  out-door pollution.
• Technological Benefits The Project implies the
  adoption and application of more advanced
  technologies for heat production based on the use
  of biomass.

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Description of the Project Set-up

• Project beneficiaries come from the pool of SIF
  clients (rehabilitation of heating systems in
  rural public buildings)
• Individual beneficiaries conclude Subsidiary
  Agreements with the Carbon Finance Unit (CFU)
  which stipulate the mechanisms for the delivery
  of GHG ERs and payments
• The CFU bundles the agreements into a
  consolidated Emissions Reduction Purchase
  Agreement (ERPA)
• The CFU negotiates and signs an ERPA on behalf of
  the individual beneficiaries with a ERs buyer (in
  the case of the Project the CDCF)
• Upon delivery of GHG ERs, the CDCF provides
  payment to the CFU, which in its turn makes a
  series of payments to the individual
  beneficiaries in accordance with the stipulations
  of Subsidiary Agreements.

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Description of the Project Set-up
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What is the Carbon Finance Unit

• The CFU is and independent legal entity created
  under the Ministry of Environment and Natural
  Resources with the support of a Japanese PHRD
  Grant
• The CFUs primary role is facilitation of CDM
  projects in Moldova, including scouting for and
  preparation of Project Idea Notes for interested
  potential beneficiaries
• The CFU has the authority to enter into
  principal-agent relationships with a variety of
  interested buyers and sellers of GHG ERs and
• The CFU has the authority to represent its
  principles financially and otherwise, as the case
  may be.
• The CFU has direct project implementation
  responsibilities towards its principles.

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The Financing Structure

• The Social Investment Fund
• - capital cost for the rehabilitation of heating
  systems and energy efficiency improvements
• Beneficiary Community contribution
• - Incremental capital cost (if applicable) for a
  RES financed through cash, bank loans, various
  leasing arrangements
• Payments from the CDCF
• - Off-setting over time (10 years) the higher
  cost of a biomass boiler
• Efficiency gains
• - Monetized savings are used to off-set the
  higher cost of a biomass boiler, as well as for
  other social needs in the rural communities.

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Reporting and Monitoring Activities

• Subsidiary Agreements provide for specific
  reporting and monitoring commitments between the
  CFU and beneficiaries
• Monitoring plans are enforced in each community
  providing, among other, information on collection
  and archiving of specific data (heating system,
  its capacity, days in operation, use of
  resources, etc).
• The CFU verifies that the monitoring methodology
  and plan are implemented correctly and check the
  information in accordance with the provisions of
  the Subsidiary Agreements
• Data from the monitoring reports serves as the
  basis for determining carbon payments due at the
  end of the period.

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Implementation Risks and Lessons Learned

• The Project is complex and synergetic, requiring
  perfect synchronization and buy-in among various
  stakeholders (ex. the GEF MSP, the SIF, the CFU
  and the beneficiaries)
• Overcoming confidence barriers towards clean
  energy technologies is a difficult process in a
  fossil-dominated fuel market, even when
  alternative resources are readily available
• Overcoming financing barriers requires a solid
  public financial effort, and/or a fairly
  sophisticated financial market to allow
  communities to renew heating systems
• Carbon finance represents a good financial
  incentive for poor communities to adopt and apply
  clean energy technologies